The transition into retirement brings with it not only financial considerations, but also profound questions about identity, security, and trust.
Retirement readiness is holistic. Financial readiness and psychological readiness are deeply interconnected. While wealth provides the foundation, clients’ anxieties often centre on broader issues such as loss of identity, purpose, and self-worth in retirement. These psychological dimensions should be addressed alongside financial planning to ensure you the client feel genuinely ready for retirement.
Fidelity have been working with Cowry Consulting – award-winning, global behavioural science specialists and have applied behavioural science, psychometric research techniques, and predictive modelling, to reveal not only what clients of financial advisers say, but also how they truly feel about whether they are financially and psychologically prepared for retirement. There were some interesting findings.
Clients who understand and feel capable with their finances are better prepared emotionally and practically for retirement…
A strong, supportive relationship with an adviser explains around 26% of the psychological readiness gained from financial readiness. In other words, trust, reassurance, and guidance from advisers are integral to how secure clients feel about retirement.
Clients who understand and feel capable with their finances are better prepared emotionally and practically for retirement and are more engaged with their adviser.
The study revealed positive sentiment for most participants (around 75%) across three key metrics: financial and psychological retirement readiness, adviser client relationship, and financial self-efficacy (financial awareness).
However, one in four participants in the study experiences a retirement readiness gap.
Broadly, respondents felt both financially and psychologically ready for retirement, driven by a strong adviser relationship and high self-efficacy; however, about a quarter of respondents sit below the median across all these factors.
Significant Factors
While unsurprising, the finding that the most significant factor driving psychological readiness is financial readiness underscores the notion that a sense of financial readiness brings peace of mind and is intrinsically linked to a client’s emotional readiness. It is difficult to separate the two, as a solid financial foundation is a fundamental requirement for feeling positive about the transition to retirement.
A good adviser-client relationship is the second most significant predictor of psychological retirement readiness, suggesting that there are many things in an adviser’s control that can contribute to clients feeling more ready for retirement. These findings emphasise the need for advisers to focus on building trusting, supportive, and caring relationships to help clients navigate their emotions and boost their overall psychological readiness.
Finally, financial self-efficacy is the third most significant predictor. It’s not just about having financial knowledge but having the confidence to apply it. This is the essence of financial self-efficacy, and by focusing on educating and empowering clients, advisers can help them build up the skills they need to plan and budget effectively, which in turn boosts their sense of agency and emotional readiness for retirement.
Retirement Factors
Perceived behavioural control
The findings show that the need to feel in control of one’s retirement and to have the capability to plan for it are the two strongest implicit predictors of psychological readiness. This feeling of agency and control, which comes partially from enjoying the retirement planning process, is deeply tied to a sense of confidence and emotional satisfaction. Therefore, it’s important for advisers to uncover retirement goals beyond money and help people plan towards these goals.
Attitudes
The research confirms that negative feelings and attitudes about retirement, such as the fear of getting bored or losing a sense of purpose, have a negative influence on psychological readiness.
Many of these individuals derive their self-worth from their career, so the prospect of no longer having it in retirement can be daunting. This, in turn, reduces their willingness to engage with planning. Therefore, advisers can play a critical role here by reframing these negative attitudes.
Norms
People’s social circles also influence their psychological readiness. While the influence of friends is a positive one, the stronger influences are worries about leaving an inheritance and concerns about being dependent on family. For many individuals, retirement is viewed as an opportunity to leave a legacy, causing angst at the prospect of not being able to. It is therefore vital for advisers to recognise and validate these powerful social
influences, and to proactively help clients navigate them by addressing intergenerational wealth management. These key factors detail the holistic nature of retirement readiness, meaning that both a client’s tangible financial situation and their deeper, unconscious feelings must be addressed for true peace of mind.
What does this mean in practice?
The study found three key areas that outline how advisers can support clients across both the financial and emotional dimensions of retirement readiness.
- Improving financial awareness by making abstract financial decisions tangible, helping clients feel a sense of ownership over the retirement process and simplifying communication to reduce clients being overwhelmed.
- Building trust and confidence by their expertise, showing the process behind retirement decision-making, and creating a safe, non-judgemental space for discussion.
- Managing expectations effectively by helping
clients connect with their future selves, setting clear communication routines (ambiguity aversion), and structuring plans into intuitive
financial ‘pots.
So, when you are getting close to retirement you can rely on your adviser to help with the emotional challenges of retirement as well as the financial ones.